Credit Market Daily #47


Good Morning!

Today we have the Bank of England which is the last Central Bank coming into bat and probably the one that has shown the most nouse in terms of managing markets.

The FED yesterday likely gives the BOE more flexibility in its messaging – Central banks are signalling they will monitor the effects of their actions and act accordingly and this will include looking at the pace of hikes.

The UK government is also playing ball with tax cuts and re-established fiscal responsibility likely to be the outcome of the Nov-17th Fiscal statement, adding to the BoE’s manoeuvrability.

Expectations are for a 75bp hike, and Bloomberg’s economist Dan Hanson thinks there is some positive surprise risk in that the BoE could opt for 50bps, remember Deputy Governor Ben Broadbent said he thought markets were getting ahead of themselves in terms of pacing.

Once the BoE is out of the way it should be back to macro data and corporate earnings driving spreads.

See “Leaders and Laggers” below and we have over 50+ names in the Leveraged Finance space reporting alone today.

As pointed out yesterday the economic data – CPI prints, Non-Farm payrolls – will lend themselves to headline-grabbing tape bombs but we are nearly through the “cycle” and things should calm down.

Finally, we have the US Mid-Terms to contend with. So don’t take the seatbelt off yet.

My call for a Jackson Hole 2.0 played out yesterday with the presser firmly putting a lid on any “Pause/ Pivot” in the near term.

Overall I think (BoE aside) that we will drift back out to the recent wides in spreads.

US credit is the most expensive on an RV basis compared to GBP and EUR credit benefitting from stronger economic and corporate fundamentals for the time being. Net-net I expect the RV to remain in place.

Reading the FOMC statement, however, there was a new sentence that did get equity markets excited (click to enlarge)

The Fed will take into account the effects of cumulative tightening, the lag effect of previous hikes and financial developments. Stocks liked this a lot.

One Twitter user pointed out that this was like a doctor saying they would take their patient’s health into account when prescribing, I have to say I was with them on this, but on the face of the statement wondered if Stocks had got their wish.

Then we had the press conference in which Powell hammered home that FED has work to do:

  • The FED would not shy away from overtightening when they have the tools to offset that damage
  • The labour market is still too tight and inflation is too high
  • They would discuss the pace of hikes at the December meeting – but given the passage of time this is expected
  • Talk of a pause in rates is very premature
  • Soft-Landing window becoming more narrow in terms of being achievable

Overall Powell came across as pretty balanced in his assessment – there is a need to monitor the effects of tightening, we want to avoid breaking the economy or causing a financial accident, but getting inflation down comes first and we have the tools to deal with overtightening.

Since we started the newsletter we have said the markets are currently akin to a pushme-pullyu, which is constantly fighting with itself for direction.

Consistently we are seeing expectations meet reality with hopium-driven rallies into Central Bank meetings, CPI prints and ever more obscure employment figures.

Eventually, this has to end in some capitulation in equities, although technicals are against this.

There is an obsession with getting to the destination of a slower rate hike cycle, or a pause, without the journey of higher rates and lower growth, and also the assumption that the destination itself (recession) will be a good place to be.

Something has to give – luckily rates and credit are ahead of the curve here and whilst valuations have gotten a lot less exciting these few weeks, they aren’t in bubble territory.

S&P 500 Intraday chart – Expectations meet Reality
Source: Bloomberg


High Yield

Yesterday was a flat day in total return terms High Yield with little movement ahead of the Fed.

I think (a 50bp hike instead of 75bp from the BoE aside) the near-term direction for spreads is back towards recent wides with the recent rally being undone.

In spread terms EUR, GBP and USD High Yield indices moved 0bps (Z+587bps), +14bps (Z+769bps) and 0bps (Z+478bps) respectively.

Sterling’s underperformance may have to do with today’s BoE meeting, and I would certainly expect some catch-up from European and US indices given the move in equities.

Xover +1bp on day opening 10 wider at 552

Leaders and Laggers

Catalent saw its bonds down 3 points following an earnings miss and cut to guidance, its equity also lost 26% on the day.

Swedish Real Estate company SBBBSS saw its bonds pop on disposal news and headlines it might need to cut its dividend to protect its credit rating.

Investment Grade

As with High Yield, not much to report yesterday with a flattish day for IG being driven by rates which saw Gilts continue to outperform on the expectation of taxes and austerity.

Spread performance was equally flat with all indices -1bp on the day, EUR, GBP and USD indices at Z+218, Z+228 and Z+155 respectively.

In CDS the Main index moved +1.4bps to 112bps.

Schnieder Electric came with a €1bn+ dual tranche deal which was well received despite it being FED day. Once all the Central banks are out of the way I would expect new issuance to resume.


This morning we are opening wider across the board in Europe and the UK on the back of the give-back in treasuries post-Powell.

Gilts outperformed yesterday and will be the focus on the back of the Bank of England’s meeting.

Treasuries, Gilts and Bunds are 414bps,343bps and 220bps respectively.


Equities are opening up weaker this morning following the FED’s meeting and no doubt with some trepidation with respect to the BoE meeting.

Overall – as has been the pattern for the last several months we rally into expectation and sell off on reality and I expect this to continue.

Given the calendar of events, we are not out of the woods yet in terms of volatility and whilst I think a reversal to where the rally started, technicals are very supportive of a move up and earnings are supportive.

The BoE will decide on direction today I think and I still believe that we have to move lower over the medium term.

Today’s Events

Eco Data

BoE Meets

Today’s Reporting
Ball CorporationBallyBausch Health
IcelandI-Heart MediaIron Mountain
OutokumpuPetrobrasRolls Royce
Royal CaribbeanSES SASGL Carbon
SolvaySuperior IndustriesTeva

What Has Caught Our Eye

Fed Presser

If you have 45 minutes to spare or can put it on in the background it is worth the watch.

“It’s premature to think about pausing interest rate hikes.”

Jerome Powell

Home Builders – Housing continues to roll over

This article from the FT builds on the latest RICs survey which points to homebuilders slowing construction and finding access to credit increasingly harder – a good insight into a leading indicator of the UK’s health and prospects for housing next year.

“The deteriorating macro environment is clearly taking a toll on the construction industry, with access to credit now being cited as a key challenge for businesses alongside the more familiar issues around building materials and labour,” said Simon Rubinsohn, chief economist at RICS.

FT, 3rd-November


High Yield

Investment Grade



One thought on “Credit Market Daily #47

Comments are closed.


Your account has been created successfully


Your categorisation has been upgraded successfully

You can’t re-categorise

Please email [email protected]
if you believe this in error

You do not qualify

Unfortunately you don’t meet the necessary criteria to upgrade your account.